Impact of Increasing World- Market Prices for Oilseeds on West African Agriculture Marc Müller NEXUS Conference 19 May, 2014 Bonn
WASCAL Partner Countries
Oil crops in West Africa: Some data Background 3
Harvested Area of Oil Crops, WASCAL Partner Countries, 1990-2010 Background Area harvested [1000ha] 750 500 250 0 1000 500 0 1000 750 500 250 0 GH BF BJ 1000 600 750 500 250 0 SN TG NG 8000 200 100 0 NE ML CI 600 750 400 500 250 0 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 year Source: FAOSTAT, own computations 400 200 0 6000 4000 2000 0 200 0 Oil crops Oilpalm Cotton Other oil plants Groundnut Soybean 4
Share of oil crops in total agricultural area, WASCAL Partner Countries, 1990-2010 GH BF BJ 0.10 0.05 Background Share in total harvested area 0.00 0.4 0.3 0.2 0.1 0.0 0.04 0.02 0.00 0.15 0.10 0.05 0.00 SN TG NG 0.20 0.15 0.10 0.05 0.00 NE ML CI 0.20 0.15 0.10 0.05 0.00 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 year Source: FAOSTAT, own computations 0.2 0.1 0.0 0.15 0.10 0.05 0.00 0.075 0.050 0.025 0.000 Oil crops Oilpalm Cotton Other oil plants Groundnut Soybean 5
Relative domestic prices, oilseeds to cereals, WASCAL Partner Countries, 1990-2010 Domestic price [USD/MT] 3 2 1 0 Background 5 4 3 2 1 0 3.0 2.5 2.0 1.5 1.0 GH BF BJ 2.5 2.0 4 3 1.5 2 1.0 1 0.5 0 SN TG NG 2.0 6 1.5 4 1.0 0.5 2 0.0 0 NE ML CI 2.0 3 1.5 2 1.0 1 0.5 comm Oilpalm Cotton Other oil plants Groundnut Soybean 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 1990 1995 2000 2005 2010 year Source: FAOSTAT, own computations 6
Summary: Oilseed production in West Africa Background Oilseed production accounts for ~15% of West Africa s harvested area Oil palm, groundnut, and cotton are dominant (depending on AEZ) Soybean has gained importance in some countries Oil palm area remained stable over the last two decades (in contrast to Indonesia and Malaysia) 7
Oilseed and vegetable oil consumption in West Africa Background While oilseeds are mainly exported, vegetable oil is mainly imported Palm fruit (not kernels) and groundnut are mainly processed on farm (~80%) Import share of vegetable oil larger than 50% 8
State of debate Motivation Increasing global energy prices may lead to increased demand for energy crops Increase of energy crop areas at expense of: Food crop areas (soybeans, cotton) Natural resources (conversion of forest into oil palm plantations) Contribution of this study: Analysis of worldmarket price changes on West African production, consumption, and rural welfare -> General equilibrium analysis because income is not exogenous! 9
Social Accounting Matrices Database GTAP-Africa database Base year 2007 6 agric. sectors (incl. oilseeds) World bank WDI Macro-indicators not represented in GTAP, e.g. remittances Update to 2010 FAOSTAT Crop areas, yields, domestic prices, more detail (30 crops) 10
Agronomic data 1 Crop calendars Yield responses from established crop models Database 11
Agronomic data 2 Maximum attainable yields (IFPRI 2009) Database 12
2-Stage model design: Decisions in stage 2 (yield formation) Methods Farmers in district d maximize total revenues R, depending on product prices p, output quantity Q, input prices q, variable input quantity V, fixed but allocable factor Z and its wage w Decisions are constrained by: Technology: CES production function First period decision: Area planted A is upper bound for area harvested H Minimum consumption requirement B for certain crops (0 if purely marketed) 13
CES Production/Yield Function Methods Maximum or potential or attainable yield (ymax) Yield Yield responses to water and nutrients are very well researched on field level! General observation: Low substitutability of inputs on field level, could be higher at regional scale v V d, c d, c d, c d, c d, c Q A V Z 1 1 1 1 A d, c V d, c Z d, c d, c, t d, c, t d, c, t d, c, t d, c, t d, c, t d, c, t lim y d, c, t, z d, c, t d, c, t d, c d, c 1 d, c 1 d, c1 A V d, c Z d, c A v z A y d, c, t d, c, t d, c, t d, c, t d, c, t d, c, t d, c, t d, c, t Existence of growth plateau empirically supported (Frank et al 1990, Paris 1989, Allen at al 1998 FAO IDP 56) d, c A d, c1 att d, c, t yd, c, t
Methods 2-stage model design: Decisions in stage 1 (area allocation) Area millet CET Transformation r_millet/r_other During planting stage, farmers maximize total expected revenues Re per unit of land, depending on wages and available factors (Z, w) Decisions are constrained by: Area other Technology: CET transformation function e max R r A w Z e d, c, t d, c, t d, t d, t d d 1 d 1 d d, t d, c, t Ad, c, t c Availability of total fixed but allocable factor Zbar (dominantly labour) A st.. Z c
Estimation of deep parameters Dependent variables: Yield and Area Independent variables: Prices (Output,Input) Population growth Regional fixed effects Monthly rainfall Methods Two-stage procedure: OLS on sample data Bayesian estimation based on OLS and agronomic information Measurement error for rainfall explicitly modelled: Lower and upper bound from stations/statistics Expected value 0 at arithmetic mean of stations Behavioral assumptions: Farmers maximized adaptively expected revenues, considering sustenance needs 16
Impact of deviations from average rainfall on gross production value (1) APR MAY JUN JUL AUG SEP OCT Intermediate results Gross production value [Average 2005-2010 = 1] 1.0 0.5 0.0 1.0 0.5 0.0 1.0 0.5 GH.SV.UE BF.HB.SO BJ.NO.AK Commodity group Cotton Groundnut Bambara bean Cowpea Cassava Yam Sorghum Millet Maize Rice 0.0 0.5 1.0 0.5 1.0 0.5 1.0 0.5 1.0 0.5 1.0 0.5 1.0 0.5 1.0 Rainfall deviation from average 17
Impact of deviations from average rainfall on gross production value (2) Intermediate results Example: Sud-Ouest, only variation of August rain Gross production value [Average 2005-2010 = 1] AUG 1.0 0.5 BF.HB.SO Commodity group Cotton Groundnut Bambara bean Cowpea Cassava Yam Sorghum Millet Maize Rice 0.0 0.5 1.0 Rainfall deviation from average 18
Calibration (currently 2005-2009 average) Methods Based on estimates of elasticities of transformation and substitution ( deep parameters ), it is now possible to calibrate area allocation and yield functions to a baseline Historical baseline: Trends for prices, cost, allocated area and yields Challenge: Variable input allocation per crop not observed Solution: Usage of household survey data on fertilizer allocation and crop budgets (Gleisberg-Gerber 2012, Yilma 2005, Kuhn at al 2011) to derive variable cost shares (ρ) Usage of maximum attainable yield data to derive area-cost shares Combination of information by exploiting the identities: dc, A dc, 1 max d, c, t yd, c, t yd, c, t A V Z d, c, t d, c, t d, c, t 1
Some agric. indicators at calibration point Intermediate results Fertilizer intensity Maximum attainable yields 20
Projected world market veg. oil and seed prices, relative to cereal prices Price scenarios Source: FAO/OECD 21
Input subsidies Policy scenarios Abolished in late 80s/early 90s in the wake of structural adjustment programs Nitrogen fertilizer prices tended to be 40% lower than during late 2000s Scenario: IPSB Decrease input price by 40%
Irrigation Policy scenarios Large-scale irrigation projects ongoing, not necessearily in case study regions. Current share of irrigate area <5%, assume double Scenario: IRRD Increase expected yield for rice, maize, and cotton by 10%
Main findings 1: Consumption Simulation results Price increase for veg. oil (by design) Increased exports of oilseeds, increased imports of oilseeds Domestic oil processing? On-farm oil-processing? (so far constant share of production) Net welfare loss for urban households, impact on rural households generally positive
Main findings 2: Land use Simulation results Conversion of forest/natural vegetation to permanent crops (palm oil): Depends on cost of conversion If land is fully mobile, 6% price increase for vegetable oil translate only in <1% of increase of palm oil in West African Countries (GH, NG, BJ) Main reason: Annual oil crops dominate Conversion of natural vegetation to annual crops (groundnut, soybean, cotton): Until 2020: Dominant driver remains increase of rural population
Policy scenarios Outlook More recent calibration point? Investment in domestic processing? Projections to mid-century Infrastructure development and R&D Price scenarios 26
Focus on innovative policies New insurance schemes Index insurances Outlook Carbon markets and green economy Case studies to establish a clearer picture on service flows from trees and forests Evaluate effectiveness of forest conservation instruments such as energy efficient cooking stoves, wood lots, living fences, land tenure reform, etc. Irrigation Shallow wells Small dams With hydrology team 27
Thank you. www.wascal.org contact: marc.mueller.zef@uni-bonn.de